Culture, institutions and the industrialization process

We propose a general equilibrium model where culture and institutions coevolve with the industrialization process. Institutions are defined as the balance of power between two social classes: workers and elites. Within the elite, there are two cultural groups: entrepreneurs and nonentrepreneurs, with culture defined as the proportion of each group. The evolution of both culture and institutions feeds back with the scope of industrialization. This mutual interplay may lead to multiple equilibria. In particular, an economy in which the entrepreneurial culture is not widespread and/or workers have little power may become trapped in a preindustrial regime. A positive productivity shock makes it possible to leave this equilibrium and generate a democratization movement. Nevertheless, depending on the initial conditions, this movement may or may not be followed by the cultural transformations that are required for industrialization. Finally, we discuss England’s industrialization experiences in light of our results.